Medicare Advantage Payments to Insurers Will Be Cut

The State Children's Health Insurance Program (S-CHIP) needs to be reauthorized by the Congress. That will cost $13 to $15 billion over the next five years--something I detailed in an earlier post.

Compounding the S-CHIP budget dilemma, Medicare physicians are scheduled to have their fee payments cut by 10% on January 1, 2008.

When the last Congress reversed the scheduled 5% fee cut for 2007, in their last minute December budget vote, they actually deferred it for only one year. Another automatic 5% fee cut is required for 2008 under the “Sustainable” Medicare fee schedule rules that remain in effect.

That produces a total of 10% in Medicare physician fee cuts that will be required on January 1, 2008––unless the Congress can find the money to fix the problem once again.

The Congress will fix the problem again--just as it has done for many years in a row. Both Democrats and Republicans don't want to offend the doctor lobby.

All of this is courtesy of the then outgoing Republican Ways and Means Chair Bill Thomas, who retired at the end of the last Congress. It seems the Democrats’ longtime nemesis, by deferring the 2007 cut for only one year, got them yet one more time by leaving them this "time bomb" worth about $3 billion.

Fixing this “double whammy” 10% Medicare physician fee cut set for January 1, 2008 is probably worth $6 billion in the upcoming 2008 budget. And again, Democrats have pledged not to spend more money unless they either cut something else or raise taxes.

So we have two big Medicare and Medicaid bills coming due this year—about $6 billion for the one-year Medicare physician fee fix and $13 billion to $15 billion for five-year S-CHIP reauthorization.

Where will the Democratic Congress get it?

As I have been warning since the November election, a big target will be the private Medicare Advantage plan payments.

In the last moments of the Republican Congress, Republicans cut $7 billion from the $10 billion Medicare Advantage stabilization fund to pay for last year’s one-year Medicare physician fee cut fix and other Medicare payments.

I have no doubt that Democrats will take the other $3 billion as soon as they can and then they are going to start to cut into the bone of the 2003 Medicare Modernization Act to pay all of these new bills.

As the new House Ways and Means Health Subcommittee Chair, Pete Stark (D-CA) put it this month, “There are precious few areas we can save money. Medicare Advantage is a prime target to pick up a few dollars.” He pointed out that the “extra” Medicare Advantage payments are worth about $5 billion annually for what has been estimated to be Medicare Advantage payments that are 10% to 11% greater than those standard Medicare gets for the same seniors.

The Dems need lots of money just to keep just the current S-CHIP and Medicare programs going and Medicare Advantage is “Target Number One.”